Investment Grade Private Credit: Portfolio Manager Roundtable

What are investors looking for as differentiators when bringing on an external private credit manager? 

Lawrence Halliday: I’ll preface this by saying that we at Voya have a strong track record of bringing new investors into the mix for private credit, so I’ve been involved in a lot of these conversations. Mostly, our clients are looking at our ability to source transactions in the market that they may not have already seen themselves. A lot of the investors have some experience in the U.S. private placement market already, and what they're finding is that as the market has grown, the distribution of the opportunities remains in a funnelled pipeline to some of the leading investors in the market. 

Virginia O’Kelley: Even as the deal sizes and interest in the asset class are both growing, there’s ongoing asset manager consolidation, particularly in third-party business. Clients are looking for access most of all—to maintain their ability to see the transactions and get allocations in them. And second, they’re looking for a high level of client service. 

“Clients are looking for access most of all—and a high level of client service.” 

If you're looking for a third-party manager, you want that manager to treat your portfolio and needs as their number-one priority—and that can be difficult at some houses due to their business structure. There are many participants in the marketplace where their third-party business is a small component of their overall AUM, and really their origination business and/or their general account are in the driver’s seat. 

Can you explain the ethos and structure of Voya’s Private Markets team? Do you have a particular focus? 

Lawrence: Given the long track record that we have for managing assets for third-party clients, our success has been in reflecting our investors’ appetite for private credit. That’s what drives us. Investors have different strategies and approaches for what they anticipate seeing from the private market, and we try to honor that. 

Our operational approach is to look at deals based on a three-legged stool of price, structure, and—most importantly—credit, which is the underlying metric. It’s what we use to drive towards understanding how to create outperformance. It’s also what we use as a basis to build an appropriate structure for a transaction, and then drive the price as best we can. 

The price can be difficult to drive given the large amount of appetite we've seen investors show for private credit. It’s the lever that you can’t pull as frequently as the others. On the underwriting side and the structuring side, though, we drive towards improving the quality of the investments that we make. Those levers we pull all the time. 

Virginia: Our team knows credit. It's ingrained in our culture and our technology. It's ingrained in meetings. We were created to function more like a commercial bank, where we have a focus not only on the up-front deal structure, but also on the workouts. 

“It's our ongoing monitoring and credit-focused thought process that creates the potential to drive exceptional returns for clients over the long term.” 

Fixed income returns are asymmetrical. This isn’t private equity, we don’t have the ability to have a ten-bagger that will balance out any substandard investments. Limiting losses for our clients is such a critical focus of our team. 

We do a significant amount of monitoring because the life of any of our transactions is long. It takes us a couple weeks or months to underwrite a transaction, depending on its complexity. But then you're invested in that deal anywhere from four to 30 years, and you have to keep an eye on it. It's that ongoing monitoring and credit-focused thought process that creates the potential to drive exceptional returns for your client over the long term. 

We often talk about how we have insurance DNA, as we were an insurance company in the past. We also work with a number of pension funds. We have a long history with serving both types of clients, and we know their unique needs and desires. We're focused on the things they care about: They want good returns, and they don’t want losses. 

Talk us through your client service process. How do you balance communication and independence? What are pitfalls that can occur in this relationship? 

Lawrence: Communication is at the heart of it. You need to have a transparent process with your clients. We share a good deal of information regarding the investments that we make on their behalf with them. We try to be transparent in our underwriting. We give them information about our credit underwriting process for their benefit, including visibility on how we price securities. 

“Honesty and transparency goes a long way towards providing clients comfort about their decision to hire us as a manager.” 

We find that honesty and transparency goes a long way towards providing clients comfort about their decision to hire us as a manager. Insurance companies come to Voya to solve some of their sourcing needs in private credit, and they see us as a way of gaining access to a broader range of deals that maybe they're not seeing—while also gaining our structuring and underwriting expertise. Our transparency also gives them comfort that any underwriting they’ve done in the past has been replaced with a robust product. For each client, the process is a little bit different. Some clients are more hands-on, and some are more hands-off about the mandates that they provide to us. 

Virginia: It goes back to the insurance DNA: We know what our insurance and pension clients need and what is important to them in these transactions. And because we’ve always had a broad spectrum of clients, we have experience with what those needs are for each individual—to the point that we can often anticipate their need before they come to us with it. 

Because we’re credit-focused, we have a very transparent and consistent process—and that consistency makes for a pleasant experience. If things are happening in the market, we like to let our clients know, because we would want to know if we were in their place. 

It comes back to asymmetrical returns. The insurers want to be able to sleep at night, and so they and want to know that their third-party managers are watching the portfolio closely and that there are eyes on any potential situation. 

You need to care about your clients; you need to want them to be comfortable with their portfolios. You need to be proactive about any issues or concerns and replicate that in your credit process. You need to be proactive in monitoring, in workouts, and restructuring, in your investment processes. 

You need to be thoughtful about how every client is different. They all have different balance sheets, different liabilities, sensitivities and concerns, and you need to listen to them. You develop their portfolio by listening to them about their needs—not by simply filling it according to your needs. That’s where being a specialist in third-party management really helps. 

What were some of the notable themes on issuance and relative value in 2024 and what have you seen thus far in 2025? 

Lawrence: This year is so far a continuation of 2024, a year that was characterized by upside for investors both in terms of issuance volume and relative value versus the public market. 

If you were to go back 10 years in the U.S. private placement market, we were looking at $55 to $60 billion of deals issued per year. Based on different tallies of what's been done in the agented space, the direct space, and from alternative asset managers who are also showing products to the market, activity has grown considerably. The U.S. private placement market is now upward of $140 to $150 billion a year. 

There's an immense number of transactions that are being shown to the market, and despite the consolidation that we've seen on the asset management side, there is a constant influx of new entrants on the investor side as they recognise the value proposition that investment-grade private credit offers. 

It’s not just the amount of deal flow that has increased. Deal sizes have also increased, and will continue to grow. Relative value across the board has increased through 2024 and into 2025. As transactions have become more complex, spreads have increased to take into account structuring risk—which is why we’re seeing investment-grade private placements averaging over 100 basis point premiums over equivalent IG corporate bonds. 

“We’ve always found it preferable to get paid extra for structure as opposed to taking additional credit risk. We’ve been doing ABF and infrastructure deals for our entire 30-year history and have tremendous experience in them.”

We’ve always found it preferable to get paid extra for structure as opposed to taking additional credit risk. We’ve been doing asset-based finance (ABF) and infrastructure deals for our entire 30-year history and have tremendous experience in them. Now we have some newer originators in the market who need to fill their own GAs and to do that, they’re providing structural solutions to clients and to CFOs. 

Because of these new originators, we’re seeing a lot more structure in a lot of the transactions in the private market. That’s because oftentimes what you’re going to be paid for, aside from having access to deal flow, is your ability to underwrite and structure good transactions for your borrowers. 

It’s funny though, we did a transaction last year with two other co-underwriters and each of us called the deal something different. We called it a corporate placement, because it had an overall corporate guarantee; one co-underwriter called it infrastructure, and the other one branded it as ABF. 

Virginia: Flow was huge in 2024; last year was the biggest in terms of transactions we've ever seen. But at the same time, we saw a ton of new investors in the market, in part because public fixed income spreads were so tight—and this rise in demand served to tighten spreads in the private market, too.

“Our sourcing ability and our selectivity allow us to maintain our relative value. We consistently deliver above-average spreads to our clients.” 

Our sourcing ability and our selectivity allow us to maintain our relative value. We consistently deliver above-average spreads to our clients, and that’ s important in a market where there is ongoing pressure on spreads. There is continued and significant interest in the asset class. Every subscription, anything that's going out to everybody is getting oversubscribed and compressed. 

It’s not as bad as in the public investment grade markets, though. We are still achieving attractive spreads, which is helpful for clients when this allocation is such a critical value-added addition to their portfolio. 

By being able to provide clients with additional yield premium versus what they can achieve in an investment grade public market, even in times when things are so tight, it proves once again the value of the private market—and the fact that we beat private market averages shows the value of a good third-party manager. We’re there to make sure clients have the best of the best for the structure, the credits, pricing, etc., and because of that, we’ll have a good year again in 2025. 

Private credit is everyone's focus and attention right now, and we see growth in our client base and potential client interest so we're glad that we can compete on both volume and value. 

How has the market evolved over the past five years, and is there anything you're looking out for in particular in the future? 

Lawrence: The biggest change over the past five years is the volume of issuance. The market has continued to grow and grow at an accelerating rate. Some of the themes that you hear in the broader financial community about seeing a disintermediation of the banking market apply to what we're seeing in our own space. 

Alternative asset managers now have grown their business in that they are syndicating transactions out to other investment grade players such as us, and that is a growing component of the deal flow that we're underwriting. 

Relative value continues to be a big component of the market, and the structural complexity of transactions has increased. It's driving that relative value premium that you get for going into the asset class. 

Having a broad base of investors and varying investor appetites in the market means that we have some investors who continually look for more traditional type corporate credit in the IG space. They want the traditional types of investment on a line-item basis. Other investors have more appetite for that enhanced value that you see in complex transactions.

“There’s an increasing amount of shorter-duration debt… there are more P&C insurers, pensions and trusts coming into the market, and they’re looking at private placements on a relative value basis.”

The market has grown in several different directions for some time. There was a large growth in cross-border or FX-type trading within our market. That remains for some investors an access point to find deal flow. 

An attribute of the market that's changed considerably is the increasing amount of shorter-duration debt. Traditionally, this has been a life insurance-heavy investor base, and that was reflected in the average duration of placements being around 7-8 years. 

That has changed; there are more P&C insurers and more pensions and trusts that are coming into the market, and they’re looking at private placements on a relative value basis, as opposed to a buy-and-hold mentality. 

“You continue to see new market entrants, but at the same time there's more concentration at the top…Once you get below the top 10, investors are getting squeezed in terms of access to transactions and allocations for clients.” 

Virginia: You continue to see new market entrants, but at the same time there's more concentration at the top. There are 50 or 60 private placement investors in the market, but once you get below the top 10, the Tier Two or Tier Three investors are getting squeezed in terms of being able to have access to all the transactions and to get allocations for their clients. 

That will continue in 2025. There are new participants, and new third-party providers coming into the market that are purchasing insurance companies and building a business from scratch. 

Lastly, over the last five years, there’s been a rise in the complexity in the transactions, in part because of these new entrants. ABF has been around forever, but it’s suddenly being talked about a lot more because now there’s more money to do these deals—and more borrower appetite for them, as public companies increasingly use them to keep debt off balance sheet. Deals coming to market are in general more complicated and more highly structured, and there are fewer plain-vanilla, easily digestible corporate deals. 

The big topics for 2025 for us, beyond the overall growth in the market, are asset manager consolidation, and the rise in interest in ABF—it’s huge, in terms of our client demand.